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# DEPRECIATION

Annuity method

## Sinking fund method

PRACTICAL PROBLEMS
(1) On 1" March 2003, a machinery was purchased by Govind for Rs. 1,00,000 and installation expenses of Rs. 10,000. On 1" June 2003 a new machine was purchased for a sum of Rs. 40,000. Assuming that rate of depreciation is @ 15% premium. You are required to prepare Machinery Account for 5 years under (1) Straight Line Method and (2) Diminishing Balance Method. (2) On 1" Jan. 2003 A Ltd. Company purchased a lease for three years for Rs. 80,000. It is decided to provide write off depreciation on Annuity Method. Assuming that rate of depreciation is @ 5% P.A. Annuity Table shows that Re. 367208 at 5% rate of interest is required for an Annuity of Re.l in three years. [Ans : Balance fo Rs. 27,978.40] (3) You are asked to calculate the depreciation for the first three years under Sum of Years Digit Method. Mrs. Govind & Co. purchased an asset for Rs. 2,10,000. Estimated life of the asset is 6 years. The Scrap Value of an asset is estimated for Rs. 10,000. [Ans: Balance at the end of third years Rs. 28571.41] (5) X Y z Ltd. purchased a machine for Rs. 14,400 on 1" Jan. 2003. It is estimated that the Scrap Value of Rs. 3,400 at the end of ten years. Find out depreciation and written down value by equal installments of every year. And also you are required to calculate rate of depreciation and prepare Machinery Account for the above said years. [Ans : Balance of Machinery Nc Rs. 11,100; Rate of Depreciation 7.64%] (6) A Company purchased a lease worth of Rs. 60,000 on 1" Jan. 2000 for 3 years. It decided to provide for its replacement by means of Insurance policy for Rs. 60,000. The annual premium is Rs. 19,000. On 1" Jan. 2003 the lease is renewed for a further period of 3 years for Rs. 60,000. You are required to show the necessary ledger accounts. [Ans : Lease Nc Balance at the end of 3'" year Rs. 60,000; Depreciation Reserve Nc Rs. 3,000; Depreciation Insurance Policy Nc Rs. 3000; (Profit transferred to Depreciation Reserve Nc)] (7) A & B Ltd. purchased a lease for 3 years for Rs. 3,00,000. On 1" Jan. 2000 it decided to provide for its replacement by taking an insurance policy for Rs. 3,00,000. The annual premium was Rs. 95,000. On I" Jan. 2003 the lease is renewed for a further period of 3 years for Rs. 3,00,000 show necessary accounts. [Ans : Profit Rs. 15,000] (8) Gowda & Co. purchased a machine for Rs. 2,00,000 on 1" Jan. 2000. The estimated useful life at 3 years with a Scrap Value Rs. 20,000. You are required to calculate depreciation charged from Profit and Loss Account by Sinking Fund Method. The Sinking Fund Table shows that 0.317208 at 5% P.A. will be in 3 years accumulate to Re.1. [Ans : Depreciation Rs. 57097.44] (9) Gupta Ltd. purchased a machine for sum of Rs. 9,000 on 1" April 2001 and it spend installation charge of Rs. 1000. Estimated total life of working hours will be 2000 hours. During 2001 it worked for 1600 hours and 2002 for 2400 hours. You are required to prepare Machinery Account for 2002 and 2003. [Ans : Balance Rs. 8,000]